Legislature Holds Informational Hearings on MCO Tax

Today, the Legislature’s special session Committees on Public Health and Developmental Services each held informational hearings on the Administration’s proposed Managed Care Organization (MCO) tax. The hearings were held to help legislators and the public understand the proposal and no votes were taken today.

The Administration’s MCO tax proposal is reflected in AB 2x-20 (Bonta) and SB 2x-15 (Hernandez), which have identical language. Jennifer Kent, Director of the Department of Health Care Services (DHCS), presented the Administration’s proposal at both hearings.

California must overhaul the current MCO tax or lose $1.1B in funding for the Medi-Cal program. The proposed MCO tax proposal has broad support from health plans, consumers groups like Health Access and Western Center on Law and Poverty, medical providers, and organizations serving people with development disabilities. Health Access believes it’s important to not leave $1 billion in federal dollars in Washington, D.C. In the years when the state budget was in deficit, hideous cuts to the Medi-Cal program were enacted, some of which have not yet been restored. Going back to the dark days of denying Californians the care they need by eliminating benefits, reducing eligibility or cutting provider reimbursement is something we fervently wish to avoid

Federal guidelines require a new MCO tax to be broad-based and uniform, meaning all plans, not just Medi-Cal plans, have to pay. Not passing this tax would leave a $1.1 billion hole in the Medi-Cal budget, making the program vulnerable to additional cuts to services.

The Administration’s new proposal is broad-based tax on health plans that has different taxing tiers based on enrollment. A “tax swap” relieves health plans of their obligation to pay gross premiums or corporations tax if they pay the MCO tax, which creates a net neutral balance for plans. The proposed MCO tax and associated tax changes will generate $1.3B for Medi-Cal. The proposal includes a 3-year sunset to allow the Legislature to evaluate whether it should be continued.

Passage of a new MCO tax requires a 2/3 vote of the Legislature, which requires Republican votes. Assemblymember Maienschein, vice-chair of the Assembly public health committee, praised the Administration and health plans for the progress they’ve made thus far, and noted that it’s critical for the MCO tax to provide a net benefit to consumers and that there is no uptick in premiums as a result, which appears to be the case. Although Republicans “are not there yet,” Asm. Maienschein said it appears we are on the way to a solution. Senators Morrell and Nielsen, two Republican members of the Senate public health committee, raised questions about whether the proposal is a tax increase and whether the budget surplus should instead be used to fund services. GOP Senator Anderson supported at least the concept of drawing down federal funds, saying “Returning that money to our communities make good sense,” but also asked many questions: “I have to explain this to my constituents. I am anticipating their questions.”

The Administration and the Legislature will continue negotiations to get the votes needed to pass the MCO tax. A vote could come next week.